June 2015

06/30/2015

Caution is urged when considering a reverse mortgage as a solution to financial problems during retirement years. Television commercials targeting seniors leave out most of the unpleasant parts of a reverse mortgage. Rates and fees are extremely high and the homeowner is still responsible to pay property taxes, insurance and upkeep. It’s important to understand the positive and negatives before signing on the dotted line.

The Better Business Bureau receives a lot of complaints about reverse mortgages. As these complaints show, there are problems and issues with reverse mortgages, and they also illustrate that more than a few consumers are confused when they sign up.

A recent article in The (Appleton WI) Post Crescent, titled “Be cautious before taking on reverse mortgage,” says that some consumers don't know that a reverse mortgage is a loan that leverages their home’s equity. It's actually one of the most expensive forms of credit a person can get, with its origination fees, interest charges, and insurance premiums topping those of most other types of loans. Typically, a reverse mortgage origination fee can be up to $6,000 and the initial premium for federal insurance is set at 2% of the home’s value.

Repayment of a reverse mortgage loan isn't required until the borrower dies or moves out of the home, but this is where it can get a bit hairy: if the borrower moves into a nursing home or assisted living facility and leaves behind a non-borrowing spouse, child, or grandchild, they’ll also need to move out.

The article explains that there are seniors who apply for a reverse mortgage because of financial difficulties, which can include property taxes or insurance payments. Reverse mortgage agreements generally state that the property taxes, insurance, upkeep, and maintenance are still the borrower's responsibility. If the borrower fails to do any of these, he or she will be in default. The lender can foreclose.

So, who is best situated for a reverse mortgage?

The Number One benefit of a reverse mortgage is that a senior can remain in the home while at the same time receiving a steady cash flow. The best reverse mortgage candidate is an individual age 62 or older who lives alone and has significant equity in the home (or doesn’t have a mortgage). Also, this person isn't planning on leaving the home to their heirs and is healthy enough to stay in the home for a long time without going into an assisted living facility.

The article says that if you're thinking about a reverse mortgage, forget about those celebrity spokespeople on TV! Talk with an experienced elder law attorney before signing anything.

Lastly, watch out for scammers who want to take advantage of seniors. That includes anybody with a too-good-to-be-true interest rate, real estate deal, or investment idea. Talk with a qualified elder law attorney first.

06/29/2015

By the end of 2015, it is expected that 5.1 million persons age 65 and over will make their homes in California. Add aging baby-boomers to the state’s current migration patterns and it is entirely likely that the state will be home to more than 8.4 million seniors by 2030. A recent report by the Senate Select Committee on Aging and Long Term Care, A Shattered System: Reforming Long-Term Care in California adds clarity to what may become a massive fiscal challenge for the state and its senior residents: “Reliance upon our existing patchwork of programs and services to serve our growing aging and disabled population will result in unnecessary expenditures, inequitable access, and irrelevant services.”

California is trying to make progress in improving the services available to its growing senior population, according to an article in The (Crestline CA) Alpenhorn News titled “Legislative protection for seniors”.

California passed AB 1899 last fall, which required any licensee found to have abandoned residents of a residential care facility to be permanently banned from operating facilities in the state. Also, California legislators passed AJR 29 in 2014. This bill asked for the restoration of federal funding for senior nutrition programs that was reduced by federal cuts, as well as to exempt these programs from future budget cuts. The federal government’s reply to this request is stalled.

Now the state’s legislators are considering AB 1122, the “Excluded Persons Administrative Action List,” or “EPAAL” legislation. It requires the state’s Department of Social Services, Community Care Licensing (DSS/CCL) to publish online all persons who are excluded from owning, operating, and/or working inside any licensed care facility as a result of an Administrative Law proceeding. The article notes that right now there’s no mandatory requirement for DSS/CCL to refer elder neglect, abuse, or other egregious behaviors against seniors residing in assisted living facilities to law enforcement, so very few of these crimes are prosecuted. But through Administrative Law proceedings, DSS/CCL can permanently or temporarily prohibit a person from working in a licensed care facility.

The current bill is supposed to provide convenient, online access to EPAAL, allowing everyone to verify that caregivers and the employees don’t have a prior history of behaviors which endangered the health or safety of a senior.

06/26/2015

The National Council on Aging has identified the Grandparent Scam as one of the top 10 cons targeting the seniors. The scam involves asking grandparents to send money to help out a grandchild in a legal bind.

This happens quite often, and many grandparents might be too embarrassed or scared to report it to relatives or police. An article from the Detroit Free Press tells us that in many instances, the victims don't see their money again, particular when it’s a wire transfer. The article, titled “Loving grandparents target of latest 'send money' scheme,” says that some Michigan grandparents were out $33,000 after being told their grandson was caught fishing without a license in Canada and had drugs and alcohol on his boat.

The FBI cautions grandparents to resist the urge to act quickly. Make sure you confirm the caller's story, as well as the grandchild's travel schedule.

The article explains that real selling point in this scam is the personal information fraudsters retrieve from Internet and social media that convince seniors that the caller knows their grandchild. Combine this with the fact that grandparents love their grandchildren and are eager to help them out.

The scam is kicking into high gear now that we’re in the summer travel season. The article warns that the scam can also come in various forms: like the caller posing as the grandchild, as a police officer, or as a lawyer. The call often comes late at night, waking grandparents and catching them off-guard. In other instances, scammers reach out via e-mail.

Grandchildren can do their part by educating grandparents about social media and all of seemingly "private" info anyone can find out about you; telling your grandparents about your travel schedule; and making an emergency contact plan (like who you would call first if something happened while you were away or choose a code word to use to prove that the caller is really your friend). And grandparents should remember the following:

Be suspicious if the caller doesn't use your grandchild's name, instead saying, for example, "I'm Nancy, your granddaughter’s friend." They likely are waiting for you to fill the blanks with a reply, like "You mean Lisa?”

Test the caller by asking a question only your grandchild would know;

Pay attention to the caller's voice and words, if he or she claims to be your grandchild. Does it really sound like your grandchild?

Don't react immediately;

Beware of phone calls in the middle of the night or ones in which you're asked not to tell the grandchild's parents about this;

Double-check all information the caller gives you. Contact the parents or other relatives, even if the caller asks you to keep it a secret;

Don't use a wire transfer, because if it's a scam, you won't be able to get it back; and

State law differences. Many online wills and trusts don’t apply state laws, just basic concepts. An estate planning attorney knows these state laws and can make sure your will or trust is legal.

Super software. There is some software and online forms that can help you draft a will, but there’s no guarantee the technology will ask specific, unique questions that an estate planning attorney might ask about your estate.

Earlier wills. Most wills have boilerplate language that will revoke a preceding will. If you write your will totally on your own, you may not realize that you need this clause.

Assumptions. What if you will property to your child and you outlive her? What if you will an asset to a friend, and that asset is gone when your will is executed? Things to think about that most people writing a will haven’t considered.

Vagueness. Sometimes executors aren’t given enough power by the language of a will.

Is it really worth all the risk? Contact an estate planning attorney today.

06/24/2015

Many people set up trusts to help provide for loved ones and favorite causes after they pass away. A trust can help manage the wealth you wish to transfer and ensures the efficient distribution of assets—such as property or a sum of money—over a set period of time. Yet a trust is only as strong as the trustee overseeing it.

A trustee is the individual or company that administers a trust for the benefit of named beneficiaries. Duties can range widely and may include paying bills and taxes, and managing property and investments.

Forbes recently had a nice article about this titled “How To Choose The Right Trustee For Your Estate.” Most importantly, the article says a trustee “has a legal fiduciary duty to manage a trust on a beneficiary’s behalf,” by always acting in the beneficiary’s best interests, as outlined by the trust.

The trustee’s job isn’t easy nor quick. Overseeing a trust could mean years of active engagement with the estate’s beneficiaries. For this reason, the article emphasizes that it’s essential to think about the most appropriate trustee before making the appointment.

A trustee doesn’t need a lot of legal or financial knowledge, but needs to be someone you trust implicitly. In addition, close proximity to the beneficiaries is important so that duties can be performed quickly and without undue travel expense. Above all, it should be someone who has the energy and mental acuity to take on all responsibilities.

Managing a trust is a big responsibility and requires a candid conversation with the potential trustee. A trustee needs to know up front what is being asked of him or her. The article also emphasizes the importance of periodically re-evaluating your trustee choice as circumstances can change. Have you and this friend grown apart or now is your parent is too old to help? If yes, it’s time to consider a new trustee.

Another option is a trust company. A trust company will be unemotional and completely detached from the situation. “There are definitely fewer family feuds when trust companies are involved,” the article says. Trust companies can also bring expertise and experience that a non-professional trustee can rarely match. The potential downside to hiring a company is that trust companies charge a fee. This can vary, but is usually a percentage of the estate. A friend or family trustee will usually not charge for their services.

Finally, the article emphasizes the importance of having language in your will that allows you to assign new trustees if circumstances change. To do this you will need flexibility in your trust language.

An experienced estate planning attorney can help you through this process.

Should I downsize?This depends on how many visitors you plan to have and how often. If you're moving far away from family, you may not expect many visits. Also, if you sell your home and buy a less-expensive home, you will probably be able to add the difference (minus fees and other expenses) to your retirement fund.

What's the cost of living at the new location? You have to consider the total cost of living, which goes beyond taxes and includes expenses such as health care, food, and transportation. While real estate prices in popular "glamor" cities like New York and LA are usually higher than smaller cities or college towns, it's your total outlay that counts: you may be able to live in a smaller space in a big city and save money on downsizing. Look at all of the expenses.

How will relocating impact my cash flow in retirement? The article says to remember that it's what you keep after taxes and inflation that counts. Look at state income tax rates because there are a few states that don't have any income tax. These include Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming. But if you examine the tax practices of other states, you'll find variations. To understand the total impact relocating will have on your after-tax cash flow in each place you're considering, work with your estate planning attorney.

Are there going to be estate-planning concerns? Relocating and establishing residency in a new state means new laws. Speak with your estate-planning attorney before you make this relocation decision to see if your estate would be subject to higher taxes and/or greater restrictions in a new location. Does the new state have an inheritance tax? How will the state value your assets? Will your surviving spouse be shielded from taxes? All great questions for your meeting with your estate planning attorney.

Will relocating improve my quality of life? So, will you be able to maintain or enhance your quality of life if you relocate? Will you be happy living farther away from your friends and family? That’s the big question.

Ultimately, the article says the decision to relocate really comes down to whether you can afford it and whether it will make you happier.

A life estate gives an individual the right to a home or other real property throughout that person's life. The life estate holder can live in the home, rent it out and keep the proceeds. The life estate holder has to pay the ordinary costs of maintaining the home, like property taxes. When the life estate holder dies, the property then goes to the holder of the remainder interest, who automatically receives full legal title and possession of the property without going through probate.

The article explains that to create a life estate, the owner of the property can execute a deed that retains a life estate interest but gives the remainder interest to another person or group. Many use a life estate to safeguard the family home from creditors, especially Medicaid. The rules of Medicaid don’t require you to sell the family home, but Medicaid puts a lien on the home. After the original owner dies, Medicaid is entitled to collect against that lien, forcing the sale of the home if necessary in order to collect that money. But if you create the life estate at least five years beforehand, Medicaid's anti-transfer rules typically don’t apply.

However, life estates do present some challenges, such as the fact that the creation of the life estate is treated as a gift to the remainder interest holder, which may mean gift tax liability. Also, the life estate holder can't sell the property without the permission of the holders of the remainder interest. The proceeds of a sale have to be divided according to the relative value of the life estate and remainder interests.

Legal concepts like life estates can be difficult to understand. Talk to an estate planning attorney about this way to preserve a family home. A life estate may not make sense for everyone, but they can be useful in the right situations for those who understand all of the factors involved.

06/19/2015

Some high-net worth families still face the challenge of reducing their estate to minimize or eliminate estate taxes, although the federal estate tax exclusion is currently larger than it has ever been. The portability of unused exclusion amounts are at $5.43 million for individuals and $10.86 million for couples. But a 40 percent top estate tax rate on amounts above the exemption concerns those with large estates.

High-net worth individuals managing their estates are better off working with an experienced estate planning attorney, The Marietta Daily Journal confirms in a recent article, titled “Estate reduction ensuring wealth transfer to heirs.”With the changes in estate and gift tax laws, have an expert on your side to ensure your documentation is drafted properly and work with your financial advisor to plan asset transfers to heirs.

An easy move for wealthy families is gifting. Individuals can gift up to $14,000 per year, per individual without incurring a gift tax. The amount doubles for spouses. There’s an informational gift tax return to be filed, but there’s no tax due if the gift is under the annual exclusion limit.

Another option is paying for medical care, insurance premiums, and education costs. These do not count against the $14,000 limit, but must be paid directly to the institution or service provider.

You can also “power-fund” a 529 College Savings Plan. The Plans allow you to contribute a lump sum (up to $70,000 per beneficiary) and then elect to treat the contribution as if it were made over five years for gift tax purposes. Those assets immediately leave your estate.

Older heirs might do well with a Grantor Retained Annuity Trust. You’ll need to work with an estate planning attorney to set this up.

A GRAT allows you to transfer rapidly appreciating or income-producing property to heirs while retaining an interest in the property over a set term, from two to 20 years. As the grantor, you are making an irrevocable, taxable gift to the beneficiaries, and the gift’s value is discounted by your retained interest.

Taxes owed on the gift to a GRAT can be partially or fully offset by the grantor’s applicable lifetime gift tax exclusion amount.

The trust pays the grantor a taxable income from the assets, based on an interest rate set by the IRS. The assets in the trust hopefully will grow at a higher rate than the annuity stream, and the excess growth will pass to the remainder beneficiaries without any gift taxes.

An estate planning attorney can create strategies that will work best for your circumstances and should be able to accommodate any changes in law.

06/18/2015

What can you do to push past the emotional aspects of estate planning to make sure your surviving family members can successfully deal with issues that may arise after you pass away?

Start early. Patrick Severo is the senior vice president and financial advisor at RBC Wealth Management. He also has three kids and knew he needed a plan to take care of them after he is gone. Severo recently told Forbes in the article titled, “Don't Let Emotion Sabotage Your Estate Plan,”that, although the discussion about what happens after you pass away feels uncomfortable, the earlier you can begin, the better off you’ll be because these things take time – maybe even years!

To help the people you care about handle the financial, administrative and familial consequences of your eventual passing, be as transparent as possible about what they can expect from your estate. Mismatched expectations can often cause trouble that could’ve easily been avoided if the news wasn’t coming as such a surprise.

An inheritance can be life-changing, so it’s important to discuss it with your loved ones upfront so they can be mentally, emotionally, and financially prepared.

Discussing your estate plans with your loved ones can also help eliminate some potentially difficult situations, like when one sibling is inheriting more than another. Hopefully the family members receiving less will be okay as long as they are forewarned.

A good estate plan can become outdated or irrelevant easily, “if it sits on a shelf.” A three-year time line for estate planning is a good rule. This means a regular review of your trust to make sure it accurately reflects your current situation and your wishes.

Being very transparent about what your beneficiaries may receive from your estate can help ensure that the dispersal of your estate goes smoothly, and your wishes are successfully fulfilled.

Working with an experienced estate planning attorney can help guide you through this process.

06/17/2015

For the last several decades, you’ve always made these kinds of decisions together. What can already be an emotional task of drafting a will is even more so after the loss of a lifelong partner. Even in the event of a terminal illness diagnosis with time to prepare in advance, Senior Vice President and Financial Advisor Cinda J. Collins of RBC Wealth Management often felt overwhelmed during the settlement of her husband’s estate after he passed away from leukemia.

Make Sure You Have a Professionally Drafted Will. To be as prepared as possible in the event of a spouse’s passing, talk to an experienced estate attorney together as a couple to ensure all your affairs are in order. If a spouse passes away unexpectedly without planning, the surviving partner will have headaches.

Typically an estate attorney will give a couple an information packet outlining all the topics to consider and documents to bring to the initial meeting. Bring your life insurance policy and any net-worth statements that tell how different properties are titled.

Another important part of estate planning for couples with young children: think about guardianship before talking with your estate planning attorney. This will be more cost effective and make the meeting more meaningful.

Open Your Own Bank Account. A big surprise for widows is that joint accounts are frozen when a spouse passes away. A separate account in your own name can be used for immediate expenses. You can also put the couple’s joint account in a trust before the spouse passes with the proviso that, in the event of his death, the assets would transfer allowing quick access to the funds.

Lean on a Friend. The complexities of estate planning make it important to rely on a qualified estate planning attorney. Just as it’s critical to rely on an expert for legal support in the estate planning process, a bereaved spouse may also turn to a third-party expert, such as a grief counselor or clergy for emotional support. Also, a recently bereaved individual might find it helpful to bring a friend to any estate-related meetings. In a state of grieving, you can miss stuff. Bring someone along to take notes and remind you of things you need to do.